Flextronics: Moving tech manufacturing to U.S. 'a journey'

Flextronics: Moving tech manufacturing to U.S. 'a journey'

Summary: The big picture here is that the U.S. is looking like a more feasible manufacturing locale for tech as emerging market costs surge.


With manufacturing costs increasing in emerging markets such as China and Indonesia, Flextronics CEO Mike McNamara said the U.S. is becoming more appealing.

McNamara's comments, delivered on a conference call on Tuesday, come days after Apple said it would manufacture in the U.S. Flextronics is a large contract equipment manufacturer for technology vendors. Flextronics said Monday that it will acquire Google's Motorola Mobility plants in Tianjin, China and Jaguariuna, Brazil. Flextronics will absorb both employees and assets used to manufacture Android devices.

The Google-Motorola transaction will be a "multibillion-dollar" deal. "We are certainly excited about the possibilities and happy to be a proud partner in that Google ecosystem," said McNamara.

However, the big picture here is that the U.S. is looking like a more feasible manufacturing locale for tech. A weak dollar is one reason, but inflation in emerging markets is also pushing changes. McNamara said:

I think, moving production back to U.S. is a process, or it is a journey, almost. What you are seeing is you are seeing the cost in China go up 20% a year, and we would anticipate the cost in China to continue to go up 20% a year for the next five years. We have seen our rates in Malaysia go up about 30% this year.

We have seen just last week the rates in Indonesia were announced that they went up more than 40%. As our costs become pressured, it makes other choices more interesting. What that is going to do is probably push more work into Mexico. And, over time, as those costs continue to go up, you'll probably see more things get pushed back in the U.S.

As you see things that get pushed back into the U.S., a la the Apple comment -- as you see things get pushed back into the U.S., it is more than just having the right cost structure. You also have to design for more automation and more different kinds of productivity. So, it is an evolution; it is not just flipping a switch. You actually have to spend a lot of work in the design, all the way through to the manufacturing process, knowing where you are going to manufacture. I think it is going to take time.

But I think with the costs continuing to go up around the world like they are, and with the cost in the United States staying relatively flat over the last few years, I would expect you would to see a little bit more coming back.

McNamara's comments about automation are notable. Why? If robots wind up replacing human labor, locations such as China, which has a manufacturing base built on employing a billion people, may lose some luster.

Here's a look at the Flextronics manufacturing footprint. 



Topics: Mobility, Android, Google, Tech Industry

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  • Flextronics: Moving tech manufacturing to U.S. 'a journey'

    the us has a hard time transitioning from a muscle based economy to knowledge based economy. it seems that the transition manpower is being supplied by outside talent pool as usual. the world is marching toward a knowledge based economy wherein design/development will give more roi than muscle based manufacturing economy (apple is a case in point as are many others.) as noted, manufacturing facilities can eventually be automated, but building a manpower that firmly believe in its raw brain power to build the next big thing is lacking. kids love to become the next idol, singer, movie star, football player, basketball player, burger flipper, etc. than becoming a designer or scientist/engineer. oh well, we can not all become designers ... something gotta give!
    • You've got to be kidding

      Most of the technology that exists today was born in the US. The rest of the world just rips off copies of it when we offshore the manufacturing.
    • Science and engineering just isn't sexy enough

      The US also suffers from a lot of anti-intellectualism. Almost anywhere else in the world an engineer would be respected as the big shot.
  • The main reason goods aren't made in the US...

    35% corporate income tax, by far the highest in the world. Too much taxes cutting into shareholder profits.

    Cut govt spending, drop the corp tax to 10%, and the job crisis will be over. (i.e. our army is larger than the next top 13 nations' armies put together)
  • High taxes?

    Don't Sweden, Finland and Germany have higher corporate and personal taxes than the U.S.? Saab had enough cash to buy Ford (but they had to sell it); Ikea sells lots of customer assembled furniture worldwide, including here, where they have very large stores. Nokia has been struggling recently, but they still make lots of cell phones. Not to mention BMW, Porsche, Siemens, etc.

    And the "golden age" of U.S. technology was in the 1950's when marginal personal tax rates went as high as 91 percent! This was higher than in the Clinton era, when business was still healthier than at the end of the Bush era! These three data points suggest that the HIGHER the tax rates, the BETTER the economy.
    • Conclusions ...

      "These three data points suggest that the HIGHER the tax rates, the BETTER the economy."

      And all serial killers were fed bread as children. So, obviously, bread is what makes people into serial killers. ;-)

      Remember, correlation is not causation.
  • It's not just taxes ...

    Electronics manufacturing is a very dirty business. Components and processes use a lot of very dangerous chemicals and compounds - substances that are highly regulated in the US. Trying to move Electronics manufacturing into the US will run smack into environmental regulation issues: the costs of first gaining the proper permitting and then the costs of the added requirements for handling, processing, holding and disposal of these chemicals will ultimately drive electronics manufacturing back overseas.

    Environmental regulations in the US are a lot like Mark Twain's cat: Once he sat on a hot stove, he learned not to do that again. But, he also never again sat on a cold stove, either. Anyone remember Love Canal? We absolutely need to be careful with dangerous chemicals - but it's also possible to learn the lessons of the past a little too well.
    • You act like companies aren't already manufacturing in the US

      There are already companies manufacturing electronics in the US. They already have some manufacturing here and are well aware of the costs involved when they make statements about moving production back over here.
      • Reading between the lines ...

        ... that aren't there.

        Costs of permitting, handling, storing and disposal of chemicals is one the things that drove these businesses overseas in the first place. And, while they've been overseas, the environmental regulations have increased dramatically. Sure there are companies doing electronics manufacturing here - but you just can't pretend that these costs of doing business have mysteriously evaporated.
  • You Gotta Be Kidding Me II

    Mac's idle ruminations about re-shoring are a waste of space even in a digital environment. While his comments about the increasing cost in his favorite places are indeed accurate, you can bet your passport he's got his troops seeking out new work forces to exploit in low cost manufacturing regions like Africa.

    Let's not forget what we're dealing with: a Singapore-based corporation whose money lives in Mauritius and whose hiring policy requires HR managers to exhaust personnel options in China and India before they're allowed to consider hiring anybody in North America.